3 reasons why you should never solely depend on AD&D insurance

By Barbara Marquand

Accidental death and dismemberment insurance may seem like a good idea when you read glaring headlines about grisly crashes, explosions and other freak catastrophes.

AD&D insurance pays your beneficiary if you die in an accident. It also pays a portion of the benefit to you if you have a disabling accident, such as losing a limb, losing sight in one or both eyes, or--in some cases--suffering paralysis or lapsing into a coma as a result of an accident.

Premiums are minimal--the price of a latte per month for tens of thousands of dollars in coverage. But don't count on AD&D to replace a standard life insurance or disability policy. Here are three reasons why:

1. Illness kills and disables far more frequently than accidents

You're much more likely to die of old age or sickness than from an accident. Accidents accounted for only 5 percent of deaths in 2007, according to the latest Centers for Disease Control statistics.

And you're much more likely to become disabled from a health condition such as diabetes, heart disease or musculoskeletal problems than dismemberment. Only 10 percent of new disability claims in 2010 were for injuries and poisoning, according to the Council for Disability Awareness. Only a fraction of those claims would qualify for AD&D benefits.

2. Accidents are strictly defined

You might think an accident is an accident. But the insurance company has strict definitions. Even if you die after a car accident, the insurer can deny the claim if it finds that a health condition led to the accident. And in some states, insurance companies can refuse to pay claims for deaths that occur 90 days after the accident.

Other exclusions include death and dismemberment that result from active military duty or training, self-inflicted injuries or suicide, and illicit drug use or intoxication.

3. Events that qualify for payouts are rare

AD&D premiums are inexpensive because the policies rarely pay out. You need a standard life insurance policy to provide financial protection for your dependents. If you die of cancer or a heart attack, your beneficiary will receive nothing if you had only an AD&D policy.

Likewise, if you become disabled because of illness or a health condition, which accounts for the vast majority of disabilities, an AD&D policy will provide no help. Disability insurance, which provides an income stream if you become disabled and can't work, is crucial because it protects your most important financial asset--the ability to earn income.

Sure, AD&D insurance can serve as a supplement. But financial advisers say you should first make sure you have all the life and disability coverage you need before considering an AD&D policy.